How to Avoid Bitter Inheritance Disputes Now

Ray Hrdlicka – Host – Attorneys.Media

Hi, this is Ray Hrdlicka, host of Attorneys.Media Legal Commentary Interview, and today we have Andrew Dósa, an estate planning attorney in Tacoma, Washington and Alameda, California. We’re going to follow up with him today on part two of our segment. The distribution plan to children regarding estate planning, and part two is going to be what happens when you have unhappy children, and how would you even get unhappy children in an estate plan? So let’s flesh that out a little bit, Andrew. You’ve got experience — how do children become unhappy in an estate plan? I can see how they get too little, right? But this part two section is about that they get too much and they’re unhappy. I don’t understand that at all.

Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA

Hey Ray, let me first start by saying thank you again for asking me to step in on the issue and kick it around with you a little bit. So I think my answers in this category are not going to necessarily be as definitive as some of my others, and it’s not as clear as what a law might say or might not say. The issue really is about who are the people that are involved. And so if we observe people, we recognize this. There are some people that are grateful for what they have, and so if they have little, they don’t mind it. They find a way to be grateful. If they want to work harder and get more, they can certainly do that. And then there are people that have a lot and are just never grateful for what they have. Or you have people that are fearful, and there’s not likely a chance that they’ll ever have enough that they’ll feel secure.

So let’s talk about children that are grateful. They’re the easy ones, right? And what happens if children are ungrateful? Or how do they get unhappy? I don’t know. How do humans get unhappy? It could be anything. I mean, we are so unreliable as people, as humans, we’re all broken up in some way. And some people just have a harder time ever being grateful for what they have. So let’s recognize this. Let’s suppose that we did give them enough that they would never really have to work more, and put aside the fact that they’re ungrateful that they didn’t get all or more.

We do know this, that more than half of the people that have ever won lotteries end up spending it all without any wisdom. And so within a relatively short period of time, within a year or two, they end up being more in debt than they were before they got it, and it’s all gone.

So what we do know is that if people who didn’t get much, whether they become happy or choose to live with it or they don’t have a choice, because the fight over changing provisions in a trust is so non-economical or expensive or difficult or challenging. If they manage their money well, they’ll do well. There are basically two types of people, people that handle money relatively well and people that handle money poorly. Among the people that handle money well, you could say there are probably two types. They’re the types that don’t really waste the money, but don’t know how to maximize the power of that income, that asset. And then there are people that don’t waste money and know how to invest it and make more of it, right? So whether you would be one of those two, you’re going to probably do all right because you’ll have enough overtime because you’re not going to be wasting it on things that are really not essential.

And then the next category is people that don’t handle money well. So if you were unhappy and good with money, you’d find a way to live with it. If you were unhappy and didn’t handle the money well, you’d find a way to lose it anyway. So if you got more, you’d lose that too.

Ray Hrdlicka – Host – Attorneys.Media

Well, the question now I would like to pose to you is, as parents who are bequeathing the money to their children, what can you suggest to help them along? I mean, do they leave a video? Do they talk to them beforehand? Do they do a trust with a monthly stipend, or all of the above?

Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA

Let’s consider this. So when I’m drafting that trust and a distribution provision to parents that have three or four children or more, or even sometimes just two, or for that matter just one, if the child is going to be unhappy or likely to be unhappy or not particularly good with money, but maybe a little bit more on the greedy side, I don’t know that there’s any way to break through. I usually tell the parents, is it wiser for you to tell them up front so that they have the disappointment now and they can learn to live with it? Or do you just let them be, let the bad news spring on them and they have to live with it after you’re gone? In which case, then what? How do they handle it? Will your child handle it better if they know ahead of time or later?

I generally tell people one of the benefits of creating a trust is that you can solve problems. And by that, I believe you solve more problems by creating the reality for your children now so that it kicks in later with the distribution plan. I’m generally more favorably inclined to recommend that parents tell their children up front. And it just depends on how they do it. If they had four kids, I’d say, write a letter to all four of them, do a video, send it to all four of them. It says, some of you do well, some of you don’t do well. It’s not that I don’t love you one more than the other. I just think some of you have gifts and others of you don’t. Some of you aren’t doing well, some of you are unhappy with me. I would love for us to have a reconciliation, but I can’t change the fact that there’s a conflict. And so my perception of the best way to do this after talking with my attorney is to create this structure for things. And you’re not going to be happy, but you need to live with it because it’s not going to change.

That’s also very powerful evidence of your capacity. One, you’re competent, you’re capable, you have the legal capacity to do things, and then that evidence is also of your willfulness. You’re not unduly influenced by one child or another. You’re not influenced or persuaded by your attorney to do something you didn’t choose to do. And so there’s more power in the person who will make that statement and spring it on the children.

My guess is most parents just think when their adult children are in conflict with them, they just don’t have the energy to take them on. They had the energy when they were parenting smaller children because they didn’t have a choice, right? You can’t not parent a child who’s 12 and needs the help no matter how much of an attitude they may have. So I’d say my general bias is to tell children up front, you confront them. And then what do the children have to do? The children have to live with that, and they begin to go, well, that’s a reality. I can’t change much. They may not like it. They may not be happy. They may never be happy, but they know what the rules are.

So there’s another part of your question, which is, what about the distribution plan and what to do with children that want more? And I’ll say, if children believed that they were going to get more sooner, the question is, is there an incentive for them to get more sooner? Or is there an incentive for them to get in better shape so that they can get more? Or is there just no incentive and they’re going to have to live with it?

So I’ll give you one example. A client of mine had three sons. One did very, very well, was just a whole lot like the father, followed him in the business. They both were investor types. People made a lot of money working as a broker and managing substantial accounts. Both did financially really well. The second son was a really responsible young man. But he was an artist and would never make a whole lot of money. But he was wise. He was frugal. He worked hard at his art. He did what he could. He still had a job to pay for his obligations.

And the third son was the one who always just seemed a little bit needy or struggled. And the parents both were a little sympathetic and then gave more and then found that they gave a little bit more and helped a little more. And the money disappeared and he came back a month and a half later with the same kind of problem. So the father said, I’m going to give a little bit every month to my son and then also make a statement. I want, Andrew, I want you to write a statement in this trust saying, I love you. I just think you need to learn how to manage your money. You need to get a job.

And the father said, I don’t care what he does. If he feels passionate about it and he’s committed to doing work well, all work is honorable. He can do what he’s well suited to and do it. If he just does it, he can get more. So there were provisions in there where the middle brother, who had fewer conflicts with the younger brother — the elder brother had all sorts of conflicts because he was just like dad — the middle brother was going to be able to do a little bit of, well, if you just do a little better, I can get you more. Just prove that you’re doing it well. And look, I’ll help you with your checking account.

So there was that — when the trustee can work with the son, and the brother is doing better, there can be more money. Why? Because then he’s kind of working with his life and doing something with it and he’s not just dependent so that he’s expecting money to pay for things. So there was a provision to withhold the funds and then to give more if he did well. So there was an incentive. And then there was no indication it was a punishment. The father clearly said, I love you. I’m not going to do this for any other reason except that I just can’t give you more money because you don’t do well with it. And that was a simple statement. The son may never learn.

Ray Hrdlicka – Host – Attorneys.Media

Well, that’s actually very interesting that you can build an incentive into a continuing estate. Great idea.

Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA

The father can create a provision for the successor trustee to have discretion just as the father has discretion right now. The father could say, I’ll give you more if I’m choosing not to. And the father said, I’m going to give the trustee the same discretion I have to give or not to give. Well, to give the little that will be required every month as he decided to give. And then the father also made another statement. Look, if my son does pass away, I want him to know that I will also give some to his wife, who’s a lovely lady, but just there, we’ll enable each other to be stuck. And so there was a provision for the daughter-in-law, if she survived, to carry on with three years of income for a set amount every month that wouldn’t help her. But after three years, it would dry up. And then whatever would be left in the trust would then go to the other two brothers.

Ray Hrdlicka – Host – Attorneys.Media

You know, there’s such an emotional aspect to creating a trust. I don’t want to have you touch on that now, but I want to maybe put that off to part three. But I’m going to keep in our minds there — let’s talk about the emotional aspect of estate planning in part three. I thank you very much for appearing with us here today, and we’ll have you back on.